Gold – Transition or Confusion?

Gold – Transition or Confusion?

Commentary for Friday, December 2, 2022 (www.golddealer.com) – Today gold closed down $5.20 at $1795.90 and silver closed up $0.40 at $23.04. Gold opened steady in early trading but dropped on a strong jobs report. Which threw a wet blanket on some of this week’s positive buzz. Traders however did buy the weakness, which is a plus for the bullish gold scenario. Consider this sudden weakness as a reminder of market uncertainty. Despite the latest upbeat FOMC comments concerning interest rates. Good Grief Charlie Brown – today the Dollar Index gained and lost a full point in three hours! A rodeo finish to what I thought was going to be a typical holiday season of “quiet” trading. Last Friday gold closed at $1744.90 / silver at $21.36 – on the week gold was $51.00 higher and silver was higher by $1.68.    

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On Monday gold was higher in last night’s Hong Kong market yet sold off in the early London trade and continued mildly lower in the domestic New York cash market. This back-and-forth pricing mirrors the Dollar Index which dipped in the early trade but quickly recovered to something around 106.00 which has been typical support since last Thursday.

I believe traders will see this “after Thanksgiving week” as a continuation of a market looking for a new dynamic to gather either the bulls or bears. But with a wider view – meaning that most believe higher interest rates will cap bullish sentiment. This is not a new idea, but it has been gaining strength of late as some traders adopt a slightly dovish stance on the short term.

We pretty much have the same trading conditions in play – but there will be important insight offered at least twice this week. Traders are eager to hear Powell’s speech on Wednesday at the Brookings Institute where he is expected to speak on the outlook for the US economy and the labor market. And the US jobs data is due this coming Friday (Reuters).

Both events do carry some weight. But I suspect not to any great degree because this current information is known or suspected. The most important factor weighing on the metals in the short term continues to be the Fed’s policy move in December.

The modest half point rise in rates before Christmas is baked into the pricing cake. My bet is that traders are expecting gold and silver bullion to trade at or around current levels. This supposition is based on the notion that the Fed will have “more room” for interest rate options.

And the current FOMC hawkish plan will turn into something like “higher interest rates over a longer time period”. This is not the best outcome for the bullish scenario, but it is a good replacement “widget”. It allows time to see if fresh safe haven demand develops in a dangerous world adapting to a new geo-political paradigm.

The latest fun rumor would be a Christmas “surprise” in rising prices due to the holidays. But for some reason this notion always comes into focus this time of year!

On the day gold closed down $13.20 at $1740.10 and silver closed down $0.52 at $20.91.

On Tuesday gold remained choppy between $1750.00 and $1760.00 in the early domestic market with an upward bias after yesterday’s weakness. There is some underlying strength as traders continue to buy weakness. This subtle optimism is hinged on the belief that Powell’s comments tomorrow will become a Goldilocks scenario – being “not so hot – not so cold”.

Professionals believe the bulls have a slight advantage as far as the technical picture is concerned. But this is likely transitory and depends greatly on the now presupposed Fed “shift” in hawkish sentiment. Consumer confidence this morning is moving lower but in my opinion the drop is not large enough to influence the paper trade in the short term.

You may however be seeing mild fresh safe haven demand coming from the unrest in China. Still this week’s metals trade lacks conviction and remains stuck – in neutral. On the month gold is higher by $100.00 yet year over year is down by $33.00. Considering the inexorable rise in interest rates it figures that paper traders will continue to sell rallies – until they don’t.

On the day gold closed up $8.30 at $1748.40 and silver closed up $0.29 at $21.20.

This from technical expert Jim Wycoff (Kitco) – “Technically, February gold futures bulls have the slight overall near-term technical advantage. Bulls’ next upside price objective is to produce a close above solid resistance at the November high of $1,806.00. Bears’ next near-term downside price objective is pushing futures prices below solid technical support at $1,700.00. First resistance is seen at today’s high of $1,773.40 and then at this week’s high of $1,778.50. First support is seen at today’s low of $1,752.90 and then at $1,740.00.

March silver futures bulls have the overall near-term technical advantage. Prices are in a choppy three-month-old uptrend on the daily bar chart. Silver bulls’ next upside price objective is closing prices above solid technical resistance at the November high of $22.50. The next downside price objective for the bears is closing prices below solid support at $19.00. First resistance is seen at this week’s high of $21.815 and then at $22.00. Next support is seen at $21.00 and then at last week’s low of $20.79.”

On Wednesday it was another quiet day at the ranch as the gold pricing spread moved between $1750.00 and $1765.00, turning choppy and eventually holding the middle ground. Of course, everyone is waiting to hear what Chief Powell has to say later today, but these information sessions have not been promising as far as guidance is concerned. Still, Jerome is perfect for this job, combining an academic approach with the ability to avoid a political quagmire.

What the Chief said at the Brookings Institute gathering was surprising and more dovish than expected. It borded on fresh optimism and created a mild updraft in stocks. This lighter Fed approach was not reflected in today’s gold close. But can be better appreciated with an aftermarket move of more than $20.00 for our shiny friend.

If his comments were simply nuanced it would not be a game changer. But the Chief said he did not want to “overtighten” and it’s better to move slowly than be forced to back up quickly. The Dollar Index dropped a full point after his question-and-answer discussion.

His discussion was more than a hint. The Fed will move to a flexible interest rate program. Considering how bearish the metals were a month ago this is a big plus for the bulls.

“Gold prices pared gains on Wednesday due to an uptick in the U.S. bond yields ahead a much awaited speech from Federal Reserve Chair Jerome Powell, although a weaker dollar kept bullion on track for its best month since May 2021.” (Reuters)

“Euro zone inflation eased far more than expected in November, raising hopes that sky-high price growth is now past its peak and bolstering the case for a slowdown in European Central Bank rate hikes next month.” This fresh Reuters quote is interesting because it may hint at future central bank action. That said, predicting inflation has always been dicey – so stay tuned.

On the day gold closed down $2.40 at $1746.00 and silver closed up $0.35 at $21.55. The physical trade was quiet today, typical for a holiday season. But the aftermarket was buzzing with scenarios so let’s “keep our fingers crossed”. “Crossing fingers dates to a pre-Christianity belief in Western Europe in the powerful symbolism of a cross. The intersection was thought to mark a concentration of good spirits and served to anchor a wish until it could come true.”

On Thursday gold pushed higher on the New York open which was not surprising considering yesterday’s big price jump in the aftermarket. It was surprising however that gold continued to move higher in what is now likely a momentum driven market on the short.

Early gold pricing peaked at $1804.00 and settled between $1794.00 and $1800.00. These higher gold prices are driven by a dollar approaching 4-month lows after Chief Powell’s comments.

The Dollar Index followed, losing a full two points (105.00) since yesterday! Very turbulent trading, which suggests caution is warranted for the uninformed and new investor.

It is easy to get caught up in the “latest” headline, but a wider timeframe in this case is a better choice. Remember that the Fed has not stopped raising interest rates.

They are focused on the timing of these hikes. Which translates into being optimistic about future inflation. What cements this turbulence in the short term is that the economic jury simply cannot make up its mind as to whether the US is facing a “soft landing” or “recession”.

Gold prices peaked ($2000.00) in early 2020. They settled on both sides of $1800.00 through late 2021, before again challenging $2000.00 in late 2021. We are again at $1800.00, which looks great from a short-term perspective but simply sets up another attempt at $2000.00. Be patient with this market because it could easily move higher or lower in the coming months. I have always believed that gold and silver bullion is one good way to separate a portion of your investment dollars from the government-controlled fiat system. There is not much chance that the world is going to blow up in the coming years. But if it did, those with real bullion money in their hands will have created a versatile system with more options.

On the day gold closed up $55.10 at $1801.10 and silver closed up $1.09 at $22.64.

On Friday gold dipped in the early trade, reacting to November’s strong jobs report. These thoughts from Heather Long (www.washintonpost.com) – The employment market is still hot, adding 263,000 jobs and wage growth continues strong up 5.1%. The conclusion being that the US does not have enough workers and the labor force is not close to pre-covid levels.

This is the type of employment news which may reverse the growing bullish sentiment in place since Chief Powell talked with the Brookings Institute on Wednesday. Gold surged after his talk and the dollar weakened. The Chief seemed to see something in the economic tea leaves that prompted a less hawkish approach to his inflation/interest rate conundrum.

I’m having some fun at his expense. But his dilemma is serious as today points out that even the Washington deep thinkers are troubled. Deciding the “best course of action” as they raise interest rates and unwind years of Covid “free money” is a road filled with potholes.

For some reason today’s lesson must be relearned on a regular basis. Take whatever the informed “insiders” have to say with a grain of salt. The jobs report is a snapshot of last month’s numbers. It may be important, but it might also be quickly forgotten – so keep your options open and stay flexible in your planning. It is also worth noting that some professional traders believe future price dips may be shallow and extend over a longer time frame, perhaps even through next year.

On the day gold closed down $5.20 at $1795.90 and silver closed up $0.40 at $23.04.

Platinum closed down $28.30 at $1039.60 and palladium closed down $45.20 at $1879.40.

My Brothers and Sisters, thank you for your friendship. If you have unusual circumstances, need cash or a special visit – talk to Harry or Eric. Most employees have been vaccinated – if this is a concern ask for more information. We continue to enforce ridged safety standards between people and product. Be careful, the contagious Omicron variants remain dangerous. At the same time trust that God will get us back to normal and our traditional business model. As always, thank you for your patience. Richard Schwary

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